Investing New Year’s Resolutions 2009

It’s been a crazy year, with bank failures, bailouts and a historic election behind us, 2008 will definitely be one to remember. In honor of the New Year, I’ve been looking back at 2008–all its ups and downs–and came up with a few investing New Year’s resolutions based on what’s happened.

1.) Don’t get caught up in the hype. This is difficult, especially if you’re a news junkie like I am, and the news is particularly relevant to your daily life, i.e., a constant barrage of information about the stock market and the economy. At the height of the madness this fall, I was refreshing Yahoo! Finance and other Web sites what seemed like every few seconds–it was probably minutes, but who’s counting? It’s particularly challenging–now that we live in a 24/7 information world–to ignore any new developments. At one point, I read an article about regular people getting up to check on Asian stock markets in the middle of the night. These were not investors or Wall Street employees, these were average people who were frightened … and obsessed.

While I love the news (I started my career in the newspaper world), I also believe that there comes a point when you reach information overload. It becomes dangerous when the desire to know what’s going on becomes an obsession and you’re losing sleep over something you absolutely cannot control (i.e., the Asian stock markets). It’s great to stay informed and on top of what’s happening in the world, but it’s also important to realize when this has taken control of your life. It’s probably not going to make you a better investor and it’ll likely only make you worry more.

So this year, with no election and hopefully the worst of the market’s crash behind us, I’m going to try to take a step back from the computer, the newspaper and the television sometimes. I’ll still probably check Yahoo! Finance 100 times a day when the market makes big moves, but I won’t worry if I miss one little news story. In a world of 24/7 information, it’s overwhelming to try to keep up with everything that’s going on. And that’s not necessary! What is important is watching, and heeding, the stock market’s message.

2.) Follow the rules. At Cabot, we have a paper portfolio competition where everyone gets a certain amount of (fake) money and invests it in the stock market. We meet frequently about the portfolios, to share our views on the market and check up on how we’re all doing.

Hopefully after reading this advisory frequently enough, you’ve gotten down some of the growth stock investing rules that we follow (cut losses short, let winners run, look for accelerating growth, etc.). We often discuss how important it is to follow these rules, as it helps prevent taking a huge hit in a stock or holding on to a winning stock so long that it’s no longer profitable anymore.

But it’s often the case that rules are not easy to follow and this can be particularly true in investing. I learned that lesson this year when I didn’t sell a few stocks from my paper portfolio before the market’s crash, despite all of the editors here advising cash. It wasn’t that I didn’t believe them, I just believed in the stocks I was holding. Right now, I still have my losers, waiting for some sort of bounce to unload them. I’ll probably do that this week and start fresh for the New Year.

So in 2009, when I have a stock that exceeds my loss limit, I’m going to sell it. No ifs, ands or buts. It’s a tough lesson to learn (I’m glad it happened with fake money), and one I won’t soon forget.

3.) Don’t let your emotions get in the way of making rational decisions. It’s difficult, especially when you’re watching the world coming to an end (or so some would have you believe), but it’s very important to keep your emotions in check when investing. As I mentioned above, I didn’t sell some of my stocks because I believed in them, despite the market’s message. Some were Green stocks, which may still be fundamentally sound, but their charts have taken some big hits. I still believe that Green has a great future, but falling in love with a stock because you think it’s going to save the world isn’t the smartest way to invest.

Getting emotional isn’t going to make me a better investor, in fact, it’s going to do a lot of harm. So instead of getting too attached to a stock, or freaking out because pundits on TV are yelling about how the sky is falling, I’m going to take a few deep breaths and try to stay rational.

4.) Read more investment books. This one is easy, for me at least because I love reading. I probably read an average of at least one book a week. It’s one of my favorite pastimes and, if given the option, I would be content to sit and read a good book all day. The key is reading books that will be helpful and educational along with the ones I read for fun. We have an excellent library of books at Cabot and a selection of book recommendations on our Web site. That’s exactly where I’m going to start when I need my first selection.

I hope you enjoyed reading my resolutions and they’ve inspired you to come up with a few of your own (please share them with us via email or on our blog, The Iconoclast Investor). Remember, learn from your mistakes, but don’t dwell on them. They teach important lessons, but the most important thing is to move forward with those teachings in mind. Best of luck to you in 2009!

A few weeks ago, Michael Cintolo wrote about a partial solution to the U.S. Social Security problem. We got many insightful responses, some of which we printed here, and they are still coming in. We received on this week that was incredibly detailed and I’ll share it with you below. If you want to read Mike’s December 11 Cabot Wealth Advisory, or any of our other past issues, you can do so on our Web site, http://www.cabot.net.

“Here’s a response from a native (Gallows Hill) Salem-ite, now relocated to suburban Washington, D.C., and managing to live very well without Social Security, courtesy of the Civil Service Retirement System and 36 years’ work for the Federal Government, where I made my living as a theoretical economist.

“1. Social Security is an income replacement scheme. It never will be a pension system, no matter how much folks might want to believe the notion; it just isn’t ever going to provide a livable pension to anyone who earned wages and became accustomed to living above the poverty line. The best proof of that can be found in professionally staged retirement seminars in which the mechanics of calculating the Social Security benefit are explained in detail. The more you earn, the lower a proportion of your net income you are assumed to need from Social Security in retirement.

“2. I would be in favor of an opt-out scheme at a certain income level, at a net income trigger of $125,000, or so. That pretty well insulates the opt-out system and keeps the lower level wage earners in a system that could be tailored to their needs. The two big questions here are: “What would such a system look like?” and “Who would run it?”

“3. I would not run retirement systems from within the public sector for two very different reasons; both heavily grounded in pragmatism. The people who brought us the Medicare, Medicaid, Social Security, Fannie Mae and Freddie Mac fiascoes are mired in a hidebound (and cumbersome) world of mediocrity that has rules and oversight that tend to further perceived social goals rather than sound investment decisions. Their natural mind set would be to manage investments so as to avoid punishment for losing portfolio value instead of maximizing returns. You can’t avoid this in government, and congressional oversight ensures that the mentality won’t change.

“The second reason is that any unified market-based government run retirement program would inevitably result in the federal government taking majority ownership positions in the firms in its portfolio. Go back to the first paragraph to see why this is a bad idea and add Henry Waxman to the mix.

“4. OK, so what to do about Social Security?

“a. Grandfather everyone now receiving a benefit, and everyone over an actuarially realistic age, into the system and have the federal government guarantee Social Security benefits for life to this population. The reason is that this population is, like WWII veterans, self-limiting. You will guarantee their benefits, but the drag on the government won’t last forever, and we will surely be out from under most of the cost by the time the incoming 18-22 year old wage-earning cohort hits retirement age.

“b. Craft an actuarially appropriate hybrid system for the wage force not included in 4.a, above. They could be allowed to stay in Social Security with their present account balances and move into a professionally managed family of portfolios such as what the federal government now uses for the Thrift Savings Plan managed for its own employees. One could offer an attractive (say, two or three times the balance) one time buy out of owned Social Security account balances to encourage the younger population to migrate to the new system. They would then abandon Social Security for the replacement market based system. Social Security will continue to under perform any market-based true pension replacement program, so windows for migration could be periodically opened to allow folks to leave Social Security every five years or so. Properly advertised, I should think that this would become a no-brainer decision for virtually everyone who initially chose to remain in the old Social Security system.

“c. Pick a date, after which all new, or returning wage earners would be forced to enter the replacement system. Returning wage earners would be forced to convert their Social Security account balances to the new system and be done with it.”

G.M.

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Golden Opportunities in the Financial Crisis

Our flagship investment advisory, Cabot Market Letter, has been safely on the sidelines during much of the market’s crash, leaving it with no baggage for 2009. There’s not even one broken stock to discard. Instead of trying to fix the past, editor Michael Cintolo is looking to the future.

Mike’s steady advice has helped subscribers retain much of their 2007 gains this year, even with the bear market and economic turmoil. Cabot Market Letter’s proven system has found leaders even in this tumultuous market, like the #1 oil stock, Continental Resources (CLR), recommended in April of this year, just before it doubled within three months.

Click the link below to get on board with a time-tested system before the next upmove begins.

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, we have links below to each issue.

Cabot Wealth Advisory 12/29/08 – Job-Hopping is History as Tough Times Take Hold

On Monday, Timothy Lutts recapped his Christmas holiday traditions, from delicious meals shared with friends and family to games for the young and old. Tim also wrote about how many of his daughters’ college-educated friends are unemployed, because of both the bad economy and their broad degrees. While times are tough for most, for-profit educators are seeing big business as people go back to school to improve their employment prospects. Featured Stock: Apollo Group (APOL).

On Thursday, Paul Goodwin wrote about how to know when to get back into the market using what he calls the Simplified Cabot Market Timer. Paul also wrote about three basic investing rules that, while simple, will keep you on track if you follow them. To close, Paul ranted about the U.S. energy policy, or lack of one, and his hopes that this will change in the future.

On Friday, Timothy Lutts wrote about a letter he received from a reader about the benefits of market timing, especially during the tumultuous year of 2008. Another reader’s letter predicted that the end is near, despite the market bouncing back after every major crisis in the past. Tim also discussed a new way to think about how much gasoline cars use and the benefits of using a different scale. Lastly, Tim wrote about an insurance investment idea. Featured Stock: Validus Holdings (VR).

Editor’s Note: The #1 question we get from readers is, “How can I get into a winning stock earlier?” We’ve got the answer. It’s Cabot Small-Cap Confidential and it’s the best guide available to help you get into stocks while they’re still in the single digits and hold on until these stocks double, triple and more. Editor Thomas Garrity is a research junkie; each month he provides subscribers with an incredibly detailed portrait of a small-cap company that he thinks is poised to explode. Enrollment is strictly limited to 500 subscribers, but the bear market has left some spots open, so click the link below to get started today. There are a limited number of subscriptions available and after they’re filled, names will go on a waiting list. These stocks are cheaper than ever so there’s never been a better time to subscribe.

Cabot Wealth Advisories

Cabot Benjamin Graham Value Investor uses the methods developed by the father of value investing, Benjamin Graham, and popularized by Warren Buffet. A system that works well in all markets, it buys stocks when they're dirt cheap, and sells when they've reached full valuation, a process that takes two years for the average selection. What's important here is buying only when a stock's price is below its Maximum Buy Price, holding through thick and thin, regardless of the news or the action of the stock, and then selling when the stock reaches its Minimum Buy Price. These are great stocks to own if you're a conservative stock investor. Chief Analyst J. Royden Ward explains clearly how to build a portfolio of stocks that meet his strict requirements-plus every issue includes updated rankings on his "Top 275 Value Stocks," so you can check on other stocks you may own.

Cabot Dividend Investor focuses on preparing for retirement, recommending a solid range of income-generating stocks, preferred stocks, REITs, MLPs, closed end funds and utilities, with particular emphasis on risk, dividend safety and dividend growth. If you’re retired or thinking about retirement, this advisory is designed for you. Cabot Dividend Investor’s proprietary Individual Retirement Income System (IRIS) will help you allocate your assets for capital appreciation, current income, growth and future income investments according to your retirement goals.

Cabot Emerging Markets Investor focuses on the emerging markets economies, with special attention paid to the BRIC (Brazil, Russia, India and China) investment landscape. You'll discover the value of international diversification and the profit potential of investing in countries whose economies are growing far faster than that of the U.S. All these stocks are traded on U.S. exchanges, usually as American Depositary Receipts. Under the guidance of Chief Analyst Paul Goodwin, Cabot Emerging Markets Investor was recognized as the top investment newsletter in 2006 and 2007 by Hulbert Financial Digest, and was rated by Hulbert as one of the top investment newsletters in every five-year period 2004 to 2011.

Cabot Growth Investor is our flagship investment advisory. Published since 1970, it is recommended for all investors seeking to grow their wealth. As a subscriber, each week you'll receive clear and comprehensive updates on the stocks recommended in our legendary Model Portfolio. You’ll also be kept apprised of the status of Cabot's proprietary market timing indicators so you’ll retreat to the safety of cash in every major bear market, and you’ll be aggressively invested in the best growth stocks in every major bull market. Furthermore, you’ll learn invaluable investing lessons, so that you won’t just become a more successful investor—you’ll become a wiser investor!

Cabot Options Trader’s Chief Analyst and options expert Jacob Mintz uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. Beginners and experts alike can benefit from following Jacob’s advice. Whenever Jacob determines the time is right, he sends specific option buy and sell alerts via email and text-message for immediate action. He also sends out a weekly update with his views on the options market, open option positions and his outlook for the coming week.

Cabot Options Trader Pro’s Chief Analyst and options expert Jacob Mintz uses the full spectrum of option strategies to recommend the option that best suits the trade opportunity—calls, puts, spreads, straddles, iron condors and more—while always controlling risk. Whenever Jacob determines the time is right, he sends specific option buy and sell alerts via email and text-message for immediate action. He also sends out a weekly update with his views on the options market, open option positions and his outlook for the coming week.

Cabot Small-Cap Confidential is a limited-circulation advisory for investors seeking profit opportunities in high-potential small company stocks. Each month, small-cap expert and Chief Analyst Tyler Laundon features in-depth research on one outstanding small-company stock that is a pioneer in its field and undiscovered by institutional analysts. Updates on all recommended stocks are sent weekly. The circulation of Cabot Small-Cap Confidential is strictly limited because the stocks recommended are often low-priced and thinly traded. In the publication’s first five years, spanning 2007-2012, the average stock recommendation gained 30.5%.

Cabot Stock of the Week offers the very best of all Cabot stocks across the investing spectrum. Each stock is personally selected by Cabot’s President and most Senior Analyst Timothy Lutts, and guided by the collective wisdom of all the Cabot expert analysts. As a subscriber of Cabot Stock of the Week, you’ll build your wealth and reduce your risk with the single best stock each week for current market conditions among growth, momentum, emerging markets, value, dividend and small-cap stocks.

Designed for experienced investors, Cabot Top Ten Trader is your ticket to fast profits in stocks that are under accumulation now. Every Monday you’ll receive a one-page profile of each recommended stock, including fundamental analysis, technical analysis and buy ranges. Plus... each Friday, Chief Analyst Michael Cintolo will give you an update titled "Movers & Shakers," so you’ll always know his latest thoughts on these fast-moving stocks. Cabot Top Ten Trader is your best source of advice on investing in the market’s hottest stocks.

Cabot Undervalued Stocks Advisor peels back the curtain of glamour and volatility that surrounds the stock market, to assess good stock-investing opportunities without being spooked by sensationalized daily news stories. Chief Analyst Crista Huff’s goal is to assist you in outperforming the major U.S. stock market indexes, while minimizing risk by screening many hundreds of stocks for growth, value and bullish technical charts. Crista presents three portfolios: Growth, Growth & Income and Buy Low Opportunities, with specific Buy, Hold and Sell advice.

Wall Street’s Best Dividend Stocks presents the best income investments from the top Wall Street analysts, researchers and advisors. Editor Nancy Zambell scours more than 200 advisories and research reports to select the top recommendations. Dividend recommendations include high yield, growth and income, REITs, mutual funds, ETFs and more. One Spotlight Stock is featured each month, along with Nancy’s insight on the market and updates on past recommendations. One top recommendation arrives in your email box each morning, and then gets collected into an easy-to-read digest of 30 to 35 top recommendations each month.

Wall Street’s Best Investments presents the best ideas from the top Wall Street analysts, researchers and advisors. Editor Nancy Zambell scours more than 200 advisories and research reports to select the top recommendations. Investment recommendations include growth stocks, value stocks, technology, small-caps, biotech, pharmaceuticals, mutual funds, ETFs and more. One Spotlight Stock is featured each month, along with Nancy’s insight on the market and updates on past recommendations. One top recommendation arrives in your email box each morning, and then gets collected into an easy-to-read digest of 35 to 40 top recommendations each month.

Reviews

“It has been an exhausting search to find an advisory service as good as Cabot Small-Cap Confidential. The proof is in the pudding.”

-D. Napoletano, DMD,Middletown, New York

Market Update

From Cabot Small-Cap Confidential:

The S&P 600 Small Cap Index is up in 20 of the last 24 days.

The stock market has been having quite the party over the past month. Since November 8, the date of the election, the S&P 500 is up by 4.8%. Small caps have crushed that performance, rising by almost 16% over the same timeframe. Much of that outperformance can likely be attributed to a more favorable relative valuation (as compared to large cap) heading into the election. And an even better outlook coming out, given what is expected to be a pro-growth administration. Given the outlook for a pro-USA administration as well, which favors small caps over large (given their 19% ex-U.S. revenue exposure vs. roughly 30% ex-U.S. for S&P 500), we essentially wound up with a pro-small cap-squared backdrop. Everything has been working.

Alert

Many top earnings winners pulled back during the two-day Brexit selloff. I want to initiate a bullish position in Applied Materials which stood out after
blowing away earnings estimates. While I like the stock, I believe that there may be limited upside in most stocks, so I want to initiate a buy-write,
which sells expensive options.

To execute this trade, you need to:
Buy AMAT Stock,
Sell to Open the August 23 Calls.

As is always the case, you can sell one call for every 100 shares of stock you buy. Or five calls for every 500 shares you purchase.

For example, you could buy AMAT stock at 23 and sell August 23 Calls for 1.00 (the math behind this net price is 23 minus 1 equals 22).
I expect you will get a better price than I'm recommending.

The most you can make on this trade is $1.00, a yield of 4.54% in just over a month if AMAT closes above 23 on August expiration.

If AMAT is unchanged on August expiration, we will have created a yield of 4.54%.

Breakeven on this trade is 22.

The most you can lose on this trade is $2200 per buy-write if AMAT were to go to zero.

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